• Soybean Oil: Pricing Opportunity?

    June 27, 2016 5:17 PM

    A number of factors are pushing food prices upward. The fundamental situation with global soybeans includes a reduced South American crop due to flooding, primarily in Argentina, the number three soybean producing country. Add to this a slightly reduced crop in Brazil and the U.S., and suddenly global supplies don’t look nearly as comfortable as they did a few months ago. According to the USDA’s report issued on May 10, 2016, that’s an 8 percent reduction (6 million metric tons) from the previous year end.

    Since vegetable oils are somewhat interchangeable, depending on the country and the exact food usage, the market fundamentals of other oils also come into play. Globally, the most consumed vegetable oil is palm oil (just ahead of soybean oil), and palm fruit production is lower due to last year’s El Nino. Reuters reported on May 10 that, “Malaysia's palm oil stocks declined to its lowest in 14 months in April because of smaller production gains due to dry weather from the El Nino weather pattern that lowered yields.”

    In its May Oilseeds bulletin, the USDA observed that “Global oil ending stocks are forecast to decline 5 percent” to their lowest level in five years.

    Global Oil Ending Stocks1
    Global Oil Ending Stocks

    In spite of the oilseed stocks reduction and the palm oil production decrease, futures markets have been focusing on the implications to soybean meal prices to the exclusion of the implications to soybean oil prices until late May. Still, the gain in soybean oil futures is lagging the increase experienced in soybean meal futures. The following depicts the soybean meal futures price trend in recent weeks.

    Soybean Meal Futures2
    Soybean Meal Futures

    Compare that price reaction to that of soybean oil futures.

    Soybean Oil Futures3
    June Market Updates Graph_Soybean Oil Futures

    Besides the bullish situation in oilseeds and palm oil, the overall price direction of all commodities as measured by the Bloomberg Commodity Index is greatly supportive, displaying steady price increases since January.

    Bloomberg Commodity Index4

    June Market Updates Graph_Commodity Index

    Yet another factor is petroleum prices. A significant element of the global demand for vegetable oils, including soybean oil and palm oil, is for biofuel feedstock. Notice how petroleum prices have mirrored the above price trends, that of soybean oil being the notable exception.

    Crude Oil Futures5June Market Updates Graph_Crude Oil Futures

    Assuming that no bearish surprises occur, the reduction in available palm oil and soybean oil for global trade seems bound to positively impact soybean oil prices in similar fashion as the likely oilseed shortage has impacted soybean meal prices. Now might be an opportune time to lock in the price of some of your vegetable oil needs.

    References
    1 Foreign Agricultural Service/USDA. "China on the Path to Become Major Peanut mporter." https://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf June 2016.
    2 CME Group. "Soybean Meal Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-meal.html June 2016.
    3 CME Group. "Soybean Oil Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html June 2016.
    4 The Financial Times. "Bloomberg Commodity Index." http://markets.ft.com/research/Markets/Tearsheets/Summary?s=570179 June 2016.
    5 CME Group. "Crude Oil Futures Quotes." http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html June 2016.

RSS Feed

Richard GallowayAbout the Expert

Richard Galloway is president of Galloway and Associates, LLC, a business consulting firm serving domestic and foreign agricultural processing, vegetable oil refining, biodiesel and grain handling industries. Galloway is a consultant to the QUALISOY Board, a collaborative effort among the soybean industry to help market the development and availability of trait-enhanced soybean oils, including high oleic soybean oil. Read More...